New Delhi, March 3 -- The 16th Finance Commission (FC) report, covering 2026-31, arrives at a consequential moment for India's fiscal federalism. It is wide-ranging, analytically rich and notable for making underlying data publicly available. It warrants careful examination.

Any FC begins with a fiscal asymmetry baked into the Indian Constitution. Following its three-list division, state governments account for roughly 60% of general government spending; but they collect only 36% of revenues. This vertical imbalance is inherent to India's federal design. The 16th FC has chosen not to alter vertical devolution, or the aggregate share of the divisible tax pool flowing to states.

Therefore, this piece focuses on horizontal devolution-i.e.,...